Does small and medium scale enterprises output drive economic growth in Nigeria?

Small and medium scale enterprises (SME) have been identified as major player in the economic growth of countries around the world through their productivity. This study investigated the possibility of the SME output driving economic growth in Nigeria. Using the time series data of the variables; Gross domestic product growth rate (GDPGR), output of SME (OPSME), loans from commercial banks to SME (LCBSME), cost of lending (COL) and Government capital expenditure on infrastructure (GCEI), extracted from the World Bank development indicators (WDI) and the relevant CBN statistical bulletins, the study applied the Autoregressive distributed lag (ARDL) bounds testing and Error correction model (ECM) to establish a relationship among the variables. The stationarity of the variables was established using the augmented Dickey Fuller (ADF) unit root test. The study revealed that the lagged values of the loans given by the commercial banks to the SME as well as the cost of lending were statistically significant in explaining economic growth which SMEs output is not statistically significant. The study also showed negativity on the lagged value on commercial bank loans to the SME implying that the previous loans are not sufficient and effective enough to drive growth in Nigeria. The positive coefficient of SMEs output implies that it impacts growth positively. Hence, we conclude that SMEs output drives economic growth in Nigeria, although its impact is insignificant. It was recommended that government should empower SMEs related agencies to grant loans to SMEs at a much reduced interest rate or cost of loan. SMEDAN and other institutions should sensitize the SME in the informal sector on the need to register with government so as to benefit from other source of finance regardless of commercial banks. Keywords: Economic Growth, SMEs, Business, Nigreria.